1. Income Distribution of Income
The way income is allocated among the population

2. Income Income sources Payment for a factor of production Gifts
Government transfers

3. Income
Lorenz Curve
A geometric representation of the distribution of income
A Lorenz curve that is perfectly straight represents complete income equality
The more bowed a Lorenz curve, the more unequally income is distributed

4. The Lorenz Curve
Figure 30-1

5. Lorenz Curves of Income Distribution, 1929 and 1996
Figure 30-2

6. Income Criticisms of the Lorenz curve
It does not include income in kind.
Income received in the form of goods and services
It does not account for the differences in size of households or the number of wage earners they contain.

7. Income Criticisms of the Lorenz curve
It does not account for age differences.
It ordinarily reflects money income before taxes.
It does not measure unreported income.

8. Percentage Share of Money Income for Households Before Direct Taxes
Income Group
Lowest fifth
Second fifth
Third fifth
Fourth fifth
Highest fifth
Does not include food stamps,
housing, education, etc.
Source: U.S. Bureau of the Census

9. International Example: Relative Income Inequality Throughout the Richest of Countries
According to the World Bank, the United States has the greatest amount of income inequality of any of the major industrialized nations.
Should something be done about such income inequality?

10. Relative Income Inequality in the World
Figure 30-3
Source: World Bank

11. Income The distribution of wealth
The distribution of income is not the same as the distribution of wealth.
A complete concept of wealth would include tangible objects, such as buildings, machinery, cards, houses—nonhuman wealth—as well as people who have skills, knowledge, initiative, talents, and so on—human wealth.

12. Measured Total Wealth Distribution
Figure 30-4
Source: Board of Governors of the Federal Reserve

13. Determinants of Income Differences
Age
Age-Earnings Cycle
The regular earnings profile of an individual throughout his or her lifetime

14. Determinants of Income Differences
Age-earnings cycle
At age 18, earnings from wage are relatively low.
Earnings gradually rise until they peak at about age 50.
Earnings then fall until retirement, when they become zero.

15. Typical Age-Earnings Profile
Figure 30-5

16. Determinants of Income Differences
Marginal productivity
Talent
Experience
Training
Investment in human capital

17. Determinants of Income Differences
Inheritance
10% of inequality traced to inheritance
Discrimination
Different pay for equal MRP
Equal pay for different MRP

18. Determinants of Income Differences
Access to education
Non-white urban males income is reduced 23–27% because of low quality education
Discrimination

19. Removing Racial Barriers: The Colourful but Colour-Blind Internet
The Internet can be anonymous so far as the racial, gender, or ethnic characteristics of buyers and sellers are concerned.
For African-American entrepreneurs the Internet is providing a means of avoiding lost income opportunities based on their race.

20. Removing Racial Barriers: The Colourful but Colour-Blind Internet
Cultural affinity hypothesis
An explanation of why race or other factors might affect people’s choices
Lenders may find it less costly to evaluate persons who share similar backgrounds.
Borrowers may prefer to apply at banks that are owned and managed by persons who have similar characteristics.

21. Determinants of Income Differences
Doctrine of Comparable Worth
The belief that women should receive the same wages as men if the levels of skill and responsibility in their jobs are equivalent

22. Theories of Desired Income Distribution
Productivity
“To each according to what he or she produces.”
Equality
“To each exactly the same.”

23. Poverty and Attempts to Eliminate It
Mass poverty can no longer be said to be a problem in the Western world.

24. Official Number of Poor in the United States
Figure 30-6
Source: U.S. Department of Labor

25. International Example: Poverty Rates in the European Union
European Union (EU)
Poverty rate
17% of 330 million or 57 million people
United States
13–15% of 265 million

26. Poverty and Attempts to Eliminate It
Defining poverty
Official poverty level in 2001 for an urban family of four was $17,650.
Adjusted annually for inflation
Does not include transfer payments
Higher than the average income in many countries

27. Relative Poverty: Comparing Household Income and Household Spending
Figure 30-7
Source: Bureau of Labor Statistics; U.S. Bureau of the Census

28. Poverty and Attempts to Eliminate It
Absolute poverty
What do you think?
Can we eliminate absolute poverty?
Relative poverty
Can we eliminate relative poverty?

29. Health Care America’s health care situation
14% of total annual income created is accounted for by spending on health care.
Per capita spending on health care is greater in the United States than anywhere else in the world.

30. Percentage of Total National Income Spent on Health Care in the United States
Source: U.S. Department of Commerce; U.S. Department of Health and Human Services; Deloitte and Touch LLP; VHA, Inc.
Figure 30-8

31. Health Care Moral hazard as it affects physicians and hospitals
Due to third-party payments, patients do not have to worry about the cost of operations and medical procedures.
Physicians and hospitals order more of them since they are reimbursed on the basis of medical procedures.

32. Health Care
Countering the moral hazard problem: a medical savings account (MSAs)
Combating moral hazard
How would MSAs reduce moral hazard?
Could MSAs reduce the quality of health care?